Inoculate Your Business

Inoculate Your Business

Snow Magazine financial writer Mark Battersby makes sense of how the pandemic could impact your business, what you need to know, and how you can quarantine it from the economic impact.

March 19, 2020

EDITOR'S NOTE: The situation with the COVID-19 -- or coronavirus -- pandemic is extremely fluid and details change rapidly on a daily and, sometimes, on an hourly basis. Snow Magazine's financial writer Mark Battersby wrote this article with the information and data he had at deadline, and doesn't account for any subsequent developments. We will do our best to update this article when appropriate.


Lawmakers and the Trump Administration continue drafting measures in an attempt to blunt the economic fallout from Coronavirus.  President Donald Trump has promised to sign one funding package that would expand a small business loan program usually offered businesses experiencing natural disasters.  The new legislation includes a short-term expansion of paid sick leave.

Under one new bill, employers must provide 14 days of paid sick leave if workers are ill or quarantined because of the virus or have to care for an infected family member.  They would be paid at not less than two-thirds of their normal rate.

Obviously, if the Coronavirus causes workers to take sick days, customers to stay home and officials to order quarantines, it will be hard on all businesses.  But what can the owners and operators of snow removal businesses do?

The Center for Disease Control and Prevention has advised businesses to do things such as require sick employees to stay home, establish sick leave policies that do not punish workers or require a doctor’s note and ask employees to inform them if family members are sick.

Despite there being no federal law requiring employers to provide sick leave, 59% of small business employees have it.  Ten states, 20 cities and three counties currently mandate it and, now, lawmakers will require employers to provide 14 days of paid sick leave.  Fortunately, a tax credit, a direct reduction of the snow removal or ice management operation’s tax bill, created as part of the Family and Medical Leave Act, may help some employers.

The Family and Medical Leave Act protects eligible employees who are incapacitated by a serious health condition, or who are needed to care for covered family members who are incapacitated by a serious health condition.  Leave taken by an employee for the purpose of avoiding exposure to the flu would not be protected by the FMLA.

Under the FMLA, covered employers, those with more than 50 workers on the payroll, must provide employees job-protected, unpaid leave for qualified family and medical reasons.  Employees on FMLA leave are entitled to the continuation of group health insurance coverage.  And, for all employers, covered or not, that do attempt to compensate their workers, there is a tax credit.

Employers have long been able to claim a tax credit for providing paid family and medical leave to employees.  The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.  The applicable percentage is equal to 12.5% and increases by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages.  The maximum applicable percentage is 25%.
Naturally, a snow removal business cannot deduct wages or salaries paid or accrued to the amount claimed as a credit.  And, the question remains about workers, part-time or seasonal, who may not be on the operation’s payroll?

Still in the tax arena, a Net Operating Loss or NOL, occurs when a business has more tax deductions than taxable income in a given year.  NOL carrybacks formerly generated a refund of taxes paid in earlier years, providing an often-badly needed infusion of cash.

Today, most NOLs arising in tax years after 2017 can only be carried forward.  What’s more the NOL deduction is limited to 80% of taxable income (determined without regard to the deduction.

And, don’t forget, while the snow removal and ice management business can’t get this tax break if it is a pass-through entity (such as sole proprietorships, partnerships or S corporations), their owners can apply their NOL on their personal tax returns.  Regular corporations are, of course, taxed at the corporate level and the NOL carryforward is applied on the corporate tax return.

Business Interruption Insurance, also known as Business Income Insurance is insurance coverage that replaced business income lost in a disaster.  Business Interruption Insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.

Business interruption may result from government-mandated closure of the snow removal operation’s premises.  Examples include forced closures because of government-issued curfews, street closures or closures mandated to prevent the spread of the virus.  

Covered are profits, usually based on earlier performance, operating expenses, temporary re-location of the operation and reimbursement for reasonable expenses that allow the business to continue operating while the business gets back on its feet.  Employee wages, taxes and loan payments are also usually covered.

The income covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.  But, remember, the insurer is only obligated to pay if he insured actually sustained a loss as a result of the interruption.  The amount that may be recouped by the snow removal business will not exceed the limit stated in the policy.

Lost income and/or profits are not considered to be a casualty loss.  In fact, the tax deduction for casualty losses may be a tough sell since it will be difficult to prove just what property was ruined or destroyed as a result of the virus or virus-related circumstances.

A pre-established line of credit allows the snow removal business to borrow in increments as needed, repay it and borrow again as long as the credit line remains open.  Typically, the operation is required to pay interest on any balance borrowed and a lesser amount for having ready access to the unexpended amount of the line of credit.

Most small business lines of credit are backed by the Small Business Administration (SBA) and offered through the SBA’s 7(a) Program.  The SBA itself does not make loans, instead, it acts as a guarantor to lending institutions that, in turn, make these loans.

These programs were originally designed to help small business needing funds to operate and grow their business.  Although a business line of credit can provide cash flow when needed, other funding may be necessary at some point.

President Trump has announced the government will be providing $50 billion to the SBA to aid small firms struggling because of supply disruptions or lower sales as a result of the virus.  The SBA also offers disaster assistance in the form of low-interest loans to businesses, renters, and homeowners located in regions affected by declared disasters.  These loans offset economic losses because of reduced revenues.

A small business suffering substantial economic injury located in a “declared federal disaster area,” may be eligible for an SBA Economic Injury Disaster Loan (EIDL).  Substantial economic injury means the business is unable to meet its obligations and to pay for ordinary and necessary operating expenses.  EIDLs provide the necessary working capital to help small businesses survive until normal operations resume after a disaster.

EIDL assistance is available only to small businesses that are unable to secure credit elsewhere.  The interest rate for EIDLs will not exceed 4% per year with a term for the loan not to exceed 30 years.  And, best of all, a snow removal and ice management business may qualify for both an EIDL and a physical disaster loan, although the combined maximum loan amount is limited to $2 million.

Estimated taxes are for everyone.  Businesses and those who are in business for themselves must estimate their expected tax bill for the year and make quarterly payments in lieu of payroll withholding.  Keeping in mind that the goal is to avoid penalties for underpaying estimated income taxes, prior to the end of the year, adjustments may be in order for all thanks to the virus.

President Trump signed a $7.8 billion emergency spending bill that reimburses state and local governments for the cost of fighting Coronavirus.  It also includes $3.1 billion for stockpiling medical supplies and $300 million for government purchases of tests, vaccines and therapies to ensure that that low-income people have access.

Using his emergency authority, the President has instructed the Treasury Department to defer income tax payments currently due April 15 without interest or penalties for individuals and businesses negatively impacted by the Coronavirus.  Although this will reportedly add an additional $200 billion in liquidity to the economy, no mention of the March 15 tax filing deadline for many businesses.

As the ever-evolving fight against the Coronavirus continues to emerge, attention must be paid to new developments.  Adding to the current worries, many experts are predicting this mess could lead to a recession. And, as always, the ever-changing response the pandemic and the complexity of the rules when dealing with its economic impact, make professional assistance advisable.